THE OFFERING DOCUMENTS1
I.
REGISTRATION AND THE REGISTRATION STATEMENT – 1933 ACT AND
1940 ACT REQUIREMENTS
A.
Initiating a Registration
1.
Notification of registration
Section 8(a) of the 1940 Act provides that an investment company may
initiate a registration under the Act by filing a notification of registration
with the SEC. The prescribed form is designated Form N-8A
(“Notification of Registration”). A company becomes “registered” when
the form is received by the SEC. Because the Internal Revenue Code
provides pass-through tax treatment to entities that, among other
requirements, are registered as investment companies every day of the tax
year, the N-8A is normally filed the same day the entity is organized as a
corporation or trust.
2.
1940 Act registration statement
Section 8(b) of the 1940 Act and Rule 8b-5 thereunder provide that, within
3 months after filing the notification of registration on Form N-8A, the
registrant must file a registration statement describing its objectives,
investment policies, investment restrictions, method of operations and
management. It also must include certain important corporate documents.
Open-end management companies use Form N-lA, closed-end
management companies use Form N-2.
3.
Combined registration statement
Section 8(c) authorizes the Commission to permit the use of an issuer’s
1933 Act registration statement or response filed by it under the Securities
Exchange Act of 1934 to supply the portions of the information required
under Section 8(b). Forms N-lA and N-2 are utilized for registration of
mutual funds and closed-end investment companies under both the 1933
and 1940 Acts.
B.
Registration on Form N-lA
Form N-lA is the registration statement for open-end investment companies. In
1
The information below is intended to be a summary and is not intended to be exhaustive. Do not rely on this
information without consulting with counsel.
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1998, the SEC adopted sweeping amendments to Form N-lA. The amendments,
part of broader disclosure reform initiatives that were undertaken by the SEC,
were designed to make the prospectus a more effective tool for investors by
focusing its contents on information essential to making investment decisions,
instead of technical and legal matters. In 2009, the SEC adopted additional
amendments to Form N-1A, which involved reorganizing the content in Form
N-1A to permit registrants to use a “summary prospectus” as a delivery option.
All new registration statements or post-effective amendments filed on or after
January 1, 2010 have had to comply with these amendments to Form N-1A. Form
N-1A consists of three parts:
1.
Part A - Prospectus
Part A of Form N-lA contains information which must be included in the
prospectus pursuant to Section 10(a)(1) of the 1933 Act. The prospectus
must provide essential information about the registrant in a way that will
assist a shareholder or prospective shareholder in making an informed
decision about whether to purchase the securities being offered. The
information contained in the prospectus must be presented in a clear,
concise and understandable manner. In particular, information must be
provided in “plain English” as provided in Rule 421(d) under the 1933
Act. With the 2009 amendments, Items 2 to 8 are required to be in
numerical order at the front of a prospectus, can only be preceded by the
front cover page (Item 1) or a table of contents and cannot include
disclosure other than that permitted by Items 2 to 8. The required
information includes:
a.
Item 1 – Front and Back Cover Pages. Four items are required on
the front cover page: the fund’s name, the fund’s ticker symbol, the
date of the prospectus, and a disclaimer about the SEC’s approval
of the securities being offered. Exchange-traded funds (“ETFs”)
must also disclose the principal market on which they are traded.
The back cover page should include disclosure concerning the
availability of the statement of additional information, and the
annual and semi-annual reports.
b.
Items 2, 3 and 4 – Risk/Return Summary. The risk/return
summary includes a description of the fund’s investment objectives
or goals, a fee table showing shareholder fees and annual fund
operating expenses, a summary of the fund’s principal investment
strategies and principal risks, and a bar chart and table showing the
fund’s year-to-year volatility, including after-tax returns,
calculated using the highest federal income tax rate. (The after-tax
return requirement does not apply to money market funds or to
prospectuses used only for investors in tax-deferred vehicles.)
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c.
Item 5 – Management. Funds must disclose the name of each
investment adviser and the name, title and length of service of the
portfolio managers.
d.
Item 6 – Purchase and Sale of Fund Shares. Funds must disclose
any investment minimums and summarize the procedures for
redeeming shares. ETFs have additional disclosure requirements.
e.
Item 7 – Tax Information. Funds must state whether they intend to
make distributions that are taxed as ordinary income or capital
gains or whether they intend to make tax-exempt distributions.
f.
Item 8 – Financial Intermediary Compensation. Funds are required
to include disclosure about payments the fund and its related
companies might make to financial intermediaries for the sale of
fund shares.
g.
Item 9 - Investment Objectives, Principal Investment Strategies,
Related Risks and Disclosure of Portfolio Holdings. The fund’s
objective must be stated, including whether the objective can be
changed without shareholder approval. Principal investment
strategies and the principal risks of investment must be disclosed.
A fund must also state that a description of the fund’s policies and
procedures with respect to the disclosure of its portfolio securities
is available in its SAI and on its website, if applicable.
h.
Item 10 - Management, Organization and Capital Structure. Funds
must disclose information about advisory services provided to, and
advisory fees paid by, the fund, the identity of the portfolio
managers, material legal proceedings against the fund, its adviser
or its principal underwriter. With respect to disclosure of advisory
services, the fund must also state that a discussion regarding the
board of directors’ basis for approving any investment advisory
contract is available in the fund’s shareholder report. With respect
to disclosure about the portfolio managers, the fund must disclose
each member of a portfolio management team who is jointly and
primarily responsible for the day-to-day management of the fund’s
portfolio (or, if more than five persons are jointly and primarily
responsible, state only the five persons with the most significant
responsibility). The fund must also disclose that additional
information concerning the portfolio manager or management team
is available in the SAI.
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2.
i.
Item 11 - Shareholder Information. A fund must disclose the
procedures for pricing shares, including, if applicable, its policy of
using fair value pricing, the procedures for purchasing and
redeeming shares, its policy with respect to dividends and
distributions, and the tax consequences of buying, holding,
exchanging and selling shares. A fair value pricing summary must
also be provided. The fund must also disclose any risks to
shareholders of frequent purchases and redemptions of fund shares,
and whether a fund has adopted such policies and procedures with
respect to such frequent purchases and redemptions.
j.
Item 12 - Distribution Arrangements. A fund must include a brief
description of arrangements that result in sales load breakpoints,
including a summary of shareholder eligibility requirements and
the methods used to value accounts in order to determine whether a
shareholder has met sales load breakpoints. Disclosure about 12b-l
fees, master-feeder fund arrangements and multiple class plans
also must be provided.
k.
Item 13 - Financial Highlights. An audited table of financial
highlights covering a five-year period must be disclosed.
l.
As noted above, Items 2 to 8 must be presented in order, and
information about obtaining additional information must be on the
back cover. Otherwise, Form N-1A does not impose any order on
the items in the prospectus.
Part B - Statement of Additional Information
Part B of Form N-lA, the Statement of Additional Information (“SAI”), is
intended to provide additional information about the registrant that is not
required to be included in the prospectus but which the SEC has concluded
may be of interest to some shareholders. The 1998 amendments moved
several items from Part A to the SAI. The SAI must be provided upon
request to recipients of the prospectus. To obtain a measure of protection
against liability for omissions from the prospectus, most funds incorporate
the SAI by reference into the prospectus. This was effective to protect a
fund in at least one litigated case. See White v. Melton, 757 F. Supp. 267
(S.D.N.Y. 1991). Information that must appear in the SAI includes:
a.
Item 14 - Cover Page and Table of Contents. Must include the
fund’s name, the fund’s ticker symbol, the date of the SAI and a
statement that the SAI is not a prospectus with disclosure regarding
how the prospectus may be obtained. ETFs must also disclose the
principal market on which they are traded.
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b.
Item 15 - General Information and History. Must provide the date
and form of organization of the fund, including the jurisdiction in
which it is organized and a general history of its operations.
c.
Item 16 - Investment Strategies and Risks. Should not include a
repetition of the information presented in the prospectus; requires
disclosure of fundamental policies (i.e., those investment policies
that may be changed only by a majority vote of the outstanding
shares). A fund must disclose its policies and procedures with
respect to the disclosure of its portfolio securities and any ongoing
arrangements to make available information about its portfolio
securities.
d.
Item 17 - Management of the Fund. Includes the identification and
description of occupations of all directors and officers of the fund
and information about fund governance; requires the disclosure of
all directors who are “interested persons,” officers’ and directors’
associations with fund affiliates, the investment adviser, and
principal underwriters; must include information concerning the
compensation of directors, officers and members of the advisory
board (if any). The SAI must also show associations of certain
members of the directors’ families with fund affiliates (beyond
those associations that might make the director an “interested
person” of the fund). In addition, the SAI must disclose the
directors’ ownership of shares of the funds that they govern, and of
shares of funds in the entire fund complex. A fund is required to
disclose whether it and its investment adviser and principal
underwriter have adopted codes of ethics under Rule 17j-1 under
the 1940 Act, and for a fund that invests in voting securities, to
describe its proxy voting policies and procedures and how
shareholders can obtain information on how the fund voted its
proxies.
e.
Item 18 - Control Persons and Principal Holders of Securities.
Requires disclosure of any controlling person (ownership of 25%
of the fund’s voting securities or actual control) and a description
of the control relationship; also requires the disclosure of the name
and address of any person or beneficiary who holds of record more
than 5% of the fund’s equity securities.
f.
Item 19 - Investment Advisory and Other Services. Includes a
description of the advisory agreement, underwriting agreement,
management related service contract, and plan of distribution, and
disclosure of compensation to underwriters, dealers and sales
personnel.
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g.
Item 20 - Portfolio Managers. A fund must provide information
regarding other accounts managed by any of its portfolio
managers, including a description of material conflicts of interest
that may arise in connection with simultaneously managing the
fund and the other accounts. A fund must disclose the structure of,
and the method used to determine, the compensation of each
portfolio manager. A fund must also disclose each portfolio
manager’s ownership of securities in the fund.
h.
Item 21 - Brokerage Allocation. Must describe the fund’s policy in
effecting securities transactions and selecting brokers and the
aggregate commissions incurred during the three most recent fiscal
years; must disclose brokerage commissions paid to affiliates and
the percentage of the commissions paid by the fund which this
amount represents.
i.
Item 22 - Capital Stock and Other Securities. Includes a full
description of authorized securities of the fund and the particular
attributes of the fund’s capital stock.
j.
Item 23 - Purchase, Redemption and Pricing of Shares. Includes
an explanation of the offering of fund shares, description of how
the fund’s portfolio securities are valued, and the fund’s
redemption procedures. The fund must also disclose any
arrangements with any person to permit frequent purchases and
redemptions of fund shares, including the identity of such person
and any compensation or consideration received by the fund for
such arrangements.
k.
Item 24 - Taxation. Requires an explanation of any tax
information relevant to investors, including whether the fund
qualifies for pass-through tax treatment under Subchapter M of the
Internal Revenue Code.
l.
Item 25 - Underwriters. Includes a description of the principal
underwriter’s commissions in the aggregate for the last three fiscal
years and more detailed information about amounts received by
each principal underwriter who is an affiliate of the fund.
m.
Item 26 - Calculation of Performance Data. This item provides an
explanation and formulae for the calculation of performance data
included in the Prospectus.
n.
Item 27 - Financial Statements (typically incorporated by reference
from the annual report sent to shareholders). In addition to
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providing financial statements and schedules in accordance with
Regulation S-X, a fund is required, among other things, to include
management’s discussion of fund performance in annual reports
and to discuss, in reasonable detail, the material factors and the
conclusions that formed the basis for the board of directors’
approval of any investment advisory contract. The fund’s
discussion must include factors relating to both the board’s
selection of the investment adviser, and its approval of the
advisory fee and any other amounts to be paid under the advisory
contract. The factors mirror the Gartenberg factors.
3.
Part C - Other Information
Part C of Form N-1A contains information that is not required to be in the
prospectus or SAI but must nevertheless appear in the registration
statement. Part C must include the following:
a.
Item 28 - Exhibits (including Articles of Incorporation, By-laws,
advisory, custodian, transfer agency and other contracts entered
into by the fund).
b.
Item 29 - A list of persons controlled by or under common control
with registrant.
c.
Item 30 - Indemnification. Requires disclosure of the general
effect of any contract, arrangement or statute under which any
director, officer, underwriter, or affiliated person of the registrant
is insured or indemnified in any manner against any liability that
may be incurred in such capacity, other than insurance provided by
the above persons for their own protection).
d.
Item 31 - Business and Other Connections of Investment Adviser.
e.
Item 32 - Principal Underwriters (identity and certain other
information).
f.
Item 33 - Location of Accounts and Records.
g.
Item 34 - Management Services.
h.
Item 35 - Undertakings (of the fund).
i.
Signatures. Persons required to sign the registration statement
include the registrant, its principal executive officer(s), its principal
financial officer, and the majority of its board of directors or
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trustees. Because all filings are now electronic, funds must
maintain signed original at its offices.
C.
SEC Review of the Initial Registration Statement
1.
Transmitting the registration statement
When filing a registration statement or amendment with the SEC, a fund
should include a letter of transmittal describing: (a) any material changes
from the most recent filing of the same kind by that complex; (b) any
problem areas that warrant particular attention; (c) any new investment
techniques, products, or methods of distribution; and (d) any prior filings
intended as precedent for the current filing. (See Investment Company Act
Release No. 13768 (February 15, 1984)).
2.
Review of the registration statement by the Office of Disclosure Policy
and Review
Any registered fund registration statement filed with the SEC is assigned
to the Office of Disclosure Policy and Review, which is within the
Division of Investment Management. Funds and fund complexes are
assigned to a particular branch, and all disclosure matters relating to that
fund complex are customarily reviewed by that particular branch, although
the SEC may rotate the reviewers every several years. In addition to the
reviewing branches, the Office of Disclosure Policy and Review has a
Senior Accountant who generally is called upon by the branches to review
complex financial matters.
3.
Type of review to expect
a.
Full Review. Full review of the entire registration statement will
typically occur, but a registrant may request selective review of
certain portions of its registration statement.
b.
Selective Review. A registrant may request selective review of a
registration statement if the registration statement is substantially
similar to disclosure contained in previous filings by a fund in the
same complex that was reviewed by the staff relatively recently
(See 1933 Act Release No. 6510 (Feb. 15, 1984)).
(1)
Conditions for selective review of a new fund registration
include that the disclosure for the new fund may not be
substantially different from that in the previous filed
registration statement or other documents cited as similar.
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(2)
4.
Where a registrant has requested selective review, the SEC
staff typically will review the remainder of the registration
statement only to confirm that a full review is not
necessary.
Exchange of comments
Initial written comments from the SEC staff based upon its review of the
filing typically are provided to the registrant within 30 days of filing.
Responses to the staff comments may be handled in various ways.
5.
a.
Telephone follow-up with the staff to clarify any comments given
is usually productive. Written responses are typically required.
b.
SEC staff have varying preferences regarding when a registrant
must respond to comments.
b.
Pre-effective amendments to the registration statement should be
filed after all outstanding comments have been resolved.
When registration becomes effective
The initial registration statement usually becomes effective by SEC order,
granted only when all SEC staff comments have been resolved. For
subsequent amendments, Rule 485 provides the dates on which such
amendments may become effective. As soon as the registration statement
is effective, sale of fund shares may commence.
6.
Tandy Representations
In connection with responding to SEC staff comments, the staff often
requests that the fund provide a written statement acknowledging that:
a.
The fund is responsible for the adequacy and accuracy of the
disclosure in the filings;
b.
Staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
c.
The fund may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, Tandy Representation requests are accompanied by a
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statement that the Division of Enforcement has access to all information
provided to the staff of the Division of Investment Management in fund
filings and in response to staff comments on filings.
D.
Number of Shares Registered - Rule 24f-2
Open-end investment companies are deemed to have registered an indefinite
number of shares under Section 24(f)(2).
II.
1.
The investment company must file a Rule 24f-2 Notice within 90 days of
the end of its fiscal year, accompanied by payment of registration fees on
shares sold, less shares redeemed, during the period. Shares distributed in
payment of dividends and distribution must be counted as sold for this
purpose.
2.
If the company does not pay the fee within that period, it will owe interest
thereon, and may be subject to other penalties.
POST-EFFECTIVE AMENDMENTS
A.
B.
General
1.
Modifications to a registration statement may be made after its original
effective date by filing “post-effective amendments” with the SEC. Rule
485 under the 1933 Act was adopted to provide an easy, controllable
mechanism to make amendments. The Rule distinguishes between
“routine” and “non-routine” changes; the distinction affects the length of
time necessary for the modification to become effective.
2.
Post-effective amendments are generally needed in order to update
financial information which has become stale. Section 10(a)(3) of the
1933 Act prohibits any registrant from using a prospectus with audited
financial statements that are more than 16 months old. Amendments also
are needed when a prospectus no longer accurately reflects fund
operations or practices.
Non-Routine Amendments - Rule 485(a)
1.
A non-routine amendment consists most often of material changes in a
prospectus or statement of additional information. Material changes
include, but are not limited to a.
Changes in a registrant’s investment objectives or policies;
b.
Termination of an investment advisory contract; or
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c.
C.
Resignation of the registrant’s independent public accountants or
one of its directors.
2.
Except as otherwise provided, a post-effective amendment becomes
effective 60 to 80 days after filing, as designated by the registrant, unless
the SEC, in the public interest and with due regard for investor protection,
declares the amendment effective on an earlier date.
3.
Post-effective amendments filed to establish a new series of an existing
investment company registrant are also filed under Rule 485(a). Such
amendments become effective 75 to 95 days after filing, as designated by
the registrant.
Routine Amendments - Rule 485(b)
A routine post-effective amendment becomes effective on the date when it is filed
or on a later date designated by the registrant on the facing sheet of the
amendment. The date may be no later than 30 days after the date on which the
amendment is filed. Prerequisites for filing pursuant to this subpart of the Rule
are:
1.
2.
The amendment is filed for one of the following purposes and no other:
a.
to update financial statements;
b.
to designate a new effective date for a previously filed Rule 485(a)
amendment;
c.
to disclose or update information required by Item 5 of Form
N-1A;
d.
to make any non-material changes that the registrant deems
appropriate (e.g., correcting inconsistencies, typographical or other
technical errors or changes deemed immaterial by registrant); or
e.
any other purpose which the SEC shall approve.
The registrant must represent that no material event requiring disclosure in
the prospectus has occurred since the latest of these dates:
a.
the effective date of the registrant’s registration statement;
b.
the effective date of its most recent post-effective amendment to its
registration statement that included a prospectus; or
c.
the filing date of a post-effective amendment which has not yet
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become effective.
D.
3.
If counsel prepares or reviews the post-effective amendment, it must
furnish a written representation that the amendment does not contain
disclosures that would render it ineligible under subsection (b).
4.
The post-effective amendment must recite that it will become effective
pursuant to subsection (b) of the Rule.
5.
The signature page of the amendment must certify that the amendment
meets all of the requirements for effectiveness pursuant to subsection (b)
of the Rule.
6.
Penalties for misusing Rule 485(b) include the suspension of the ability to
file pursuant to that subsection.
“Sticker” Amendments - Rule 497
Certain changes in the prospectus can be made by supplementing the existing
prospectus pursuant to Rule 497(c). These “sticker” amendments have the effect
of providing information on a current basis.
III.
1933 ACT CIVIL LIABILITY
A.
False or Misleading Registration Statements
The 1933 Act provides a specific civil remedy for purchasers who acquire
securities covered by false or misleading registration statements. A registration
statement is misleading if at the time it becomes effective it contains “an untrue
statement of material fact or omit(s) to state a material fact required to be stated
therein, or necessary to make the statements therein not misleading.” (Section
11(a).)
1.
Persons who may be liable:
a.
Every person who signed the registration statement;
b.
Every director of the issuer;
c.
Every person about to become a director, who with his or her
consent is named in the registration statement;
d.
Every accountant, engineer, appraiser, attorney, or other person
who gives an expert opinion with respect to a part of a registration
statement;
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B.
e.
Every underwriter of the security; and
f.
Any controlling person of the foregoing.
g.
Certain defenses may be available.
False or Misleading Prospectuses or Oral Communications
Section 12 of the 1933 Act permits purchasers to sue any seller or offeror of a
security who used a prospectus or oral communication that was false or materially
misleading. Certain defenses may be available.
C.
Statute of Limitations
Section 13 of the 1933 Act provides a statute of limitations for actions under
Section 11 or 12 of the Act; i.e., one year from the date the purchaser discovers
the violation, but in no event more than three years after the purchase.
IV.
STATE SECURITIES LAWS
In connection with the enactment of the National Securities Markets Improvements Act
of 1996, the substantive regulation of SEC registered mutual funds by state securities laws was
eliminated. However, many states require certain notice filings and filing fees. Depending on
the state, these may include copies of all registration statements and post-effective amendments
and/or certain other forms (such as Form NF or Form U-2).
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